Stadshypotek's operating profit for the first half of 2008 was SEK 1,865m (2,229). The decrease was mainly due to net interest income being SEK 232m lower than the same period the previous year. Net gains/losses on financial operations decreased by SEK 107m, compared to the same period the previous year. This was mainly due to unrealised changes in the market value of financial assets and liabilities subject to hedge accounting and derivatives. Unrealised changes in market value were negatively impacted in the first quarter as a result of falling market interest rates. However, during the second quarter, unrealised changes in market values were positively affected due to rising market rates.

 

For a number of years the competition for private customers' mortgage loans has led to reduced margins, which has had a negative impact on net interest income.  However, the margins for mortgage loans where the rate is newly set were stable during the second half of 2007, and increased in the first half of 2008. Stadshypotek's lending volume in the private market continued to perform well during the period. But when comparing the net interest income to the corresponding period in the previous year, the increase could not offset the falling lending margins. Net interest income was also negatively affected due to the remaining effects from previously repurchased bonds.

 

 

Recoveries exceeded new loan losses, and the net amount recovered was SEK 28m (49), which corresponds to a loan loss ratio of -0.01% (-0.02) of lending.

 

Before deduction of the provision for probable loan losses, the volume of bad debts was SEK 247m (284). SEK 62m (32) of the bad debts were non-performing loans, while SEK 185m (252) were loans on which the borrowers pay interest and amortisation, but which are considered doubtful in view of the uncertainty as to the borrowers' repayment capacity and the value of the collateral. In addition, there were non-performing loans of SEK 490m (283) that are not assessed as being bad debts. After deduction of the provision for probable loan losses, the volume of bad debts was SEK 171m (204).

 

 

Lending to the public was SEK 546bn, an increase of SEK 22bn in the first half of the year. The trend for Stadshypotek's share of net growth in the private market was favourable, and the market share was some 25%. Stadshypotek retained its position as a leading player on the Swedish corporate market, with a market share of approx. 32%.

 

 

On 1 February 2007, new capital adequacy regulations were implemented - the Basel II regulations. The new regulations entail major changes in how the capital requirement is to be calculated and how a satisfactory capital base is to be ensured. They will be implemented gradually, since the transitional regulations allow for an adaptation over three years. As at 30 June 2008, the capital ratio was 10.9% (10.0). As at 30 June 2008, the Tier 1 capital ratio was 7.7% (7.1). Further information concerning capital adequacy is provided in the section entitled capital base and capital requirement.

 

 

Stadshypotek's rating was unchanged.

 

Stadshypotek
	Long-Term	Short-term
Moody's	Aa1	P-1
Standard & Poor's	AA-	A-1+
Fitch	AA-	F1+
Covered bonds
Moody's		Aaa

 

 

Stadshypotek has decided to start up branch operations in Norway during the third quarter. A mortgage loan portfolio of approx. NOK 35 billion will initially be transferred from the parent company's branch in Norway to Stadshypotek's branch. The objective of the establishment is to expand the Handelsbanken Group's collateral for issuing covered bonds, thereby enabling increased funding via such bonds.

 

 

The accounts comply with the IASB accounting standards adopted by the EU. The regulations of the Swedish Annual Accounts Act for Credit Institutions and Securities Companies and the directives issued by the Swedish Financial Supervisory Authority are also applied. The accounting policies are unchanged from the previous annual report.

 

Stockholm, 22 July 2008

 

Lars Kahnlund

Chief executive

 

 

 

The report can be downloaded from the following link: